Self Directed Sep

Written by Johnny Kitchens
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A self-directed SEP is much like a self-directed IRA. If you have an SEP (Simplified Employee Pension), you already know that it is simply another retirement savings account that offers certain tax advantages. SEPs are often preferred by small businesses with few employees over more complicated plans. You can invest funds from your SEP as you would most any other account but you want to be certain that you follow all of the guidelines as laid out by the IRS.

Publication 560 from the IRS lays out most of the guidelines and prohibitions regarding the use of funds from small business retirement plans like SEPs, SIMPLE plans, and Keogh plans. Publication 939 lays out the general rules for funds from various pensions and annuities. You are responsible for understanding and following the limits and protocols as they apply to your accounts whether you know them or not (just as you are required to pay taxes whether you have read the tax code or not).

Self-directed accounts are often preferred by experienced investors because they do not have to go through their custodians for every little decision. By retaining checkbook control over their accounts, experienced investors are able to more quickly respond to investment opportunities. For inexperienced investors, checkbook control can be both good and bad. They get the same freedoms but they may not be aware of how they can run afoul of the rules.

Staying within the Bounds of the Law

The law provides for special treatment of pensions and retirement accounts in order to help taxpayers provide for their retirements when their earning power will likely decline. Abusing the privileged status of such accounts leaves the IRS to be justified by law to treat all funds in such accounts as normal income and tax them at regular rates. In addition, they may be able to levy extra penalties and fees. It is best to understand the rules before you start straying from the beaten path.


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